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Walmart Seals The Deal of $16 Billion For Flipkart

The Scoop:

Walmart has sealed the deal of $16 Billion for Flipkart.com in its race to compete with rival Amazon. This is despite scared investors who do not want to take a hit in order to wait on walmarts e-commerce growth longterm.

The Story:

Walmart has completed its largest acquisition in its history in terms of price ($16 billion) for Indian startup Flipkart. The Bentonville-based retail giant announced Saturday (Aug. 18) the deal had closed giving it 77% ownership in Flipkart with the remainder being held by shareholders including co-founder Binny Bansal, Tencent, Tiger Global and Microsoft.

The deal is expected of slow gradual growth to Walmart shareholders. This year, the company expects earnings per share will be hit by as much as 30 cents per share. Next year, the impact is expected to be 60 cents per share.

Walmart and Flipkart will achieve more together than each of us could accomplish separately to contribute to the economic growth of India, creating a strong local business powered by Walmart.. Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers. As a company, we are transforming globally to make life even easier for customers, and we are delighted to learn from, contribute to and work with Flipkart to grow in India, one of the fastest-growing and most attractive retail markets in the world.

Judith McKenna, President and CEO of Walmart International

Walmart stated Flipkart’s financials will be reported as part of Walmart International. Flipkart’s existing management team will continue to lead the business. Tencent Holdings Limited and Tiger Global Management LLC will remain represented on the Flipkart board, in addition to independent board members, and will be joined by new members from Walmart.

McKenna stated Walmart has been seeking India and waiting or the right time to take the plunge with respect to e-commerce. McKenna said e-commerce has just 2% market penetration in India, but is expected to quickly rise.

Flipkart is not just another e-commerce retailer. They have created a platform operating in the market from a position of strength.

McKenna

She stated Flipkart was also attractive because of its additional segments, two fashion businesses, an e-cart final mile logistics arm, and an open-source phone pay platform that allows for peer-to-peer payments.

The Future:

The Flipkart investment transforms Walmart’s position in India whose has more than 1.3 billion people, strong GDP growth, a growing middle class and significant runway for smartphone, internet and e-commerce penetration. The retailer stated that as it scales in India, it hopes to create sustained economic growth across agriculture, food and retail.

Future investments by Walmart will support national initiatives and will bring sustainable benefits in job creation, supporting small businesses, supporting farmers, supply chain development and reducing food waste. Walmart’s investment includes $2 billion of new equity funding to help accelerate the growth of Flipkarts business. Both companies will retain their unique brands and operating structures in India.

We are poised and ready to deliver the full value of this partnership for India… By combining Walmart’s omni-channel retail expertise, supply-chain knowledge and financial strength with Flipkart’s talent, technology and local insights, we are confident that together we can drive the next wave of retail in India.

Flipkart CEO Binny Bansal

Wall Street has been mixed on the benefits of Flipkart for investors given the price-tag for a company that has yet to turn a profit. But they should not be worried as Amazon, Inc took years to turn a profit. Walmart CEO Doug McMillon addressed analysts’ concerns about the deal. He said you often don’t get to pick the timing of opportunities. He stated that with solid growth in the U.S. business providing a strong financial foundation, the company felt this investment for the future was worth the short-term risk to earnings.

In India, it’s worth it. I believe we will look back five to 20 years from now and say it was a bold bet, but it was worth it. We are not running this thing for a year, we’re looking for long term success

Doug McMillon, Walmart CEO

Stephens Inc. analyst Ben Bienvenue remains overweight on Walmart Stores following this deal saying while the financial impact is more significant than expected, the value of the asset warrants the investment.

Growing through acquisition is the best way for Walmart to expand its international footprint and the deal for Flipkart makes sense following that strategy.

Walmart is not going to find a perfect glove to fit their hand, so they have to make strategic plays when they can do so… One thing for certain is that Walmart is going to have to invest in acquisitions to grow e-commerce share against the likes of Amazon and Alibaba.

Annibal Sodero, professor of supply chain at the University of Arkansas

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